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Managing External Influences on Governance

Managing External Influences on Governance

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Corporate director’s time is a limited commodity. While directors are usually required to meet ten to twelve times per year, the job of corporate governance demands more participation time between board meetings than actual board meeting time. Directors must demand higher standards of their CEO for leadership on important issues. Boards must be strong enough to allow outside participation by employees and customers, and directors must hire advisors to conduct redundant regulatory functions to allow the board and corporate management to focus on the strategy of enhancing shareholder value.
Corporate director’s time is a limited commodity. While directors are usually required to meet ten to twelve times per year, the job of corporate governance demands more participation time between board meetings than actual board meeting time. Directors must demand higher standards of their CEO for leadership on important issues. Boards must be strong enough to allow outside participation by employees and customers, and directors must hire advisors to conduct redundant regulatory functions to allow the board and corporate management to focus on the strategy of enhancing shareholder value.

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Published by: Dr. Earl R. Smith II on Oct 31, 2008
Copyright:Attribution Non-commercial

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09/27/2010

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Managing External Influences on Governance
By Dr. Earl R. Smith IIDrSmith@Dr-Smith.comwww.Dr-Smith.comOne of the challenges facing any board of directors isto manage the inputs from sources outside the boardand maintain a deliberate process that focuses onprotecting and extending shareholder value. Evenboards of smaller companies face this challenge.Some of the inputs may come from advisors andconsultants. Other sources include the media,industry news, communications about or fromcompetitors, company management or employees,major shareholders and the network of connectionsthat each director maintains. Much of this information is extremelyvaluable and should be included in board deliberations. The trick is tobalance it with the deliberative process and maintain focus on theboard’s fiduciary responsibility to the shareholders.Participating in corporate governance really means participating in thedecision-making process and implementing the strategies of thedecisions reached. Corporate boards must encourage participation byits directors and CEO, and demand leadership on issues affectingcorporate financial results. Good corporate governance on complexissues requires the talent of all the directors appointed to the board toshare in open discussions, strategies and possible outcomes. Directorspreparation for board of directors meetings centers on information richreports from various committees and advisory boards, and livelydiscussions of strategy and compliance management issues. It alsoincludes information from sources beyond the board and companymanagement. Boards have developed several strategies to deal withthis increasing complexity.Boards of directors have changed practices over the years to includeparticipation by a larger set of stakeholders. The new governancemodel invites reports gathered from corporate management, companyemployees, customers and outside advisors. More boards arecollaborating with advocacy groups and special interest groups todemonstrate their commitment to causes important to theirconstituency or their stockholders. Special interest groups are formingamong stockholders and blocks of stockholders and pressuring boardof directors to act on their issues. One result is that the decision-making environment of the board becomes far more complex andrequires a more delicate approach to balancing conflicting priorities.
 
Succession committees maintain records of board of directors meetingon director participation rather than just attendance. Boards can nolonger survive on the participation of just one or two leaders.Leadership development is a large part of the governance model.Strategic plans for retaining talent and attracting the next wave of directors increasingly focuses on personal growth and corporategovernance. It is more and more common to provide leadershipdevelopment coaching to sitting directorsCoaching, long a part of CEO and senior team development is nowbeing offered to sitting directors. Coaching of directors has proven tobe a good investment. It improves performance, reduced liabilities andincreases retention rates. Board assessments consistently demonstratethis fact. Boards are more than ever participating in the evaluation andself-assessment of their performance. Coaching helps toprofessionalize the board and its operation - assessments measure theprogress along these lines.Corporate boards are also authorizing directors to form and participatein industry councils. Industry council’s work with competitors to writeand execute strategic plans ranging from compliance with Sarbanes-Oxley to overturning regulations the industry sees as unwarranted.Industry council form education consortiums to offset the cost of employee training to comply with government standards or to addressissues surrounding contracts with government agencies. Industrycouncils form Political Action Committees and hire professionalgovernance to manage their PAC’s.Under many regulatory rules, boards as a whole share in theresponsibility of compliance with federal and state regulations.However, more and more boards are hiring outside advisors to manageissues outside the organization’s mission. Directors participate in thediscussions with the outside party and ensure compliance withcorporate ethics and rules, but the third party conducts the actualassessment and has the duty to conduct the work according to the law. The board of directors must vote to accept the recommendations of the third party and to accept the responsibility if the contractor fails toexecute to the standards required.Corporate director’s time is a limited commodity. While directors areusually required to meet ten to twelve times per year, the job of corporate governance demands more participation time between boardmeetings than actual board meeting time. Directors must demandhigher standards of their CEO for leadership on important issues.Boards must be strong enough to allow outside participation byemployees and customers, and directors must hire advisors to conduct

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